Fury as plan for new homes in East Jerusalem is agreed

Scheme to redevelop hotel in Arab part of city further threatens peace talks

A fresh row that could place even further strain on US-Israel relations was triggered yesterday after Jewish settlers were given the final go-ahead to build 20 new homes in a highly sensitive part of Arab East Jerusalem.

Furious Palestinian negotiators denounced the approval for a settlement at the site of the old Shepherd Hotel in Sheikh Jarrah which started to come to light just before the Israeli Prime Minister Benjamin Netanyahu met the US President Barack Obama on Tuesday night. The White House spokesman Robert Gibbs said yesterday that Washington was seeking "clarification" of the latest building plan and that "areas of disagreement" remained between Israel and the US even after three-and- a-half hours of "honest and straightforward" talks between the two leaders.

The Shepherd Hotel plan is part of a bigger development promoted by the right-wing Jewish American magnate Irving Moskowitz, a major patron of Jewish settlement in East Jerusalem. It will cast a new shadow over US efforts to restart indirect negotiations stalled by plans to construct 1,600 homes in the ultra-orthodox settlement of Ramat Shlomo.

Mr Obama met Mr Netanyahu alone in an attempt to iron out the public differences between the two governments over continued settlement building, especially in East Jerusalem. As Israeli-US meetings continued yesterday in Washington ahead of Mr Netanyahu's return to Israel last night, the Palestinian Authority's chief negotiator, Saeb Erekat, said: "Israel is digging itself into a hole that it will have to climb out of if it is serious about peace. There is overwhelming international consensus on the illegality of Israel's settlements, including in East Jerusalem, and the damage they are doing to the two-state solution."

Both the US and Britain – whose consulate general would be a near-neighbour of the planned settlement – have long made clear their opposition to the development, which would involve tearing down part of the pre-1967 Palestinian hotel complex to make way for 20 apartments and an underground car park. The site is in the same neighbourhood as a street where there have been three separate evictions of Palestinian families and regular weekly protests, mainly by left-wing Israelis, against encroachments by Jewish settlers.

The municipality complained that the leak of the final approval was "meant to stir up a provocation" during Mr Netanyahu's visit to Washington and said that formal approval had been given last July. The final go-ahead was "automatically" given after the developers paid required fees to the municipality. The move coincides with a declaration by city officials that they had temporarily stopped discussions on expansion building in East Jerusalem since the row over Ramat Shlomo blew up during the visit by the US Vice-President Joe Biden earlier this month. Mr Netanyahu told US Congress members on Monday that he had "no jurisdiction" to stop building in Jerusalem.

Israel unilaterally annexed East Jerusalem after the Six Day War but that has never been accepted by most of the international community, including Britain. Israeli officials have complained that the Palestinians have been using such developments as an excuse to stall talks. "Are we supposed to accept that the annexation was illegal as a precondition of peace talks?" said one. "That is in the realm of fantasy."

But Hagit Ofran, from Peace Now, said: "It seems that the municipality of Jerusalem has it own policy that might be devastating for the peace process and Netanyahu wasn't clear enough in order to stop them from allowing further provocation in East Jerusalem."

* The Israeli military has ordered a military police investigation into the shooting of two unarmed Palestinian teenagers on Saturday.